SACRAMENTO, Calif. — Dignity Health, California’s largest hospital provider and the country’s fifth largest health system, has agreed to pay the United States $1.55 million to settle claims of deficiencies regarding the handling of controlled substances at its hospitals and clinics, United States Attorney Benjamin Wagner announced today. Dignity Health will pay $1,250,000 immediately, and the remaining $300,000 will be deferred pending Dignity Health’s compliance over the next two years with a detailed action plan.

The payment and action plan resolve the United States’ claims that Dignity Health facilities in the Sacramento area failed to properly record hundreds of transactions involving controlled substances in violation of the Controlled Substances Act (CSA) and its implementing regulations, and had insufficient compliance procedures and controls regarding the distribution of controlled substances. The action plan agreed to by Dignity Health is designed to advance the health system’s ability to meet its record-keeping requirements and its ability to detect and prevent diversion in its prescription drug-dispensing operations.

The DEA commenced its investigation of Dignity Health following reported losses of over 20,000 tablets of hydrocodone from the outpatient pharmacy at St. Joseph’s Medical Center in Stockton, CA in late 2010 and 2011. A 2011 audit conducted by the DEA at the pharmacy revealed significant shortages of a number of the controlled substances evaluated, including most strengths of hydrocodone, a Schedule III opioid analgesic narcotic sold in tablet form. Hydrocodone is highly addictive and often diverted to the black market from legitimate sources. The DEA’s subsequent investigation revealed that several Dignity Health locations were failing to keep accurate records under the laws designed to safeguard the public against diversion of the most abused classes of legally manufactured and prescribed drugs.

Since the DEA’s investigation, Dignity Health executive leadership has worked cooperatively with the DEA and the U.S. Attorney’s Office to develop a detailed action plan to address the identified deficiencies in Dignity Health’s handling of controlled substances by instituting an overhauled CSA compliance regime. Components of the action plan include: annual external audits of CSA compliance, with results to be reported to the DEA; keyless entry systems installed at Dignity Health locations to monitor and restrict access to areas containing controlled substances; increased physical counts and inventories of controlled substances to quickly identify discrepancies; monthly certifications that record-keeping requirements are met; and annual CSA compliance training for Dignity Health employees who handle controlled substances.

“The abuse of hydrocodone and other painkillers has become an epidemic,” said United States Attorney Wagner. “The CSA created a ‘closed system’ of controlled substance distribution so the DEA can better monitor the movement of prescription drugs to end users. This system reduces the opportunity for diversion of drugs that can have a useful and legitimate medical purpose for those lawfully consuming them. Unfortunately, however, if hospitals and pharmacies are lax in their record-keeping or supervision of their drug-dispensing operations, opportunities arise for the diversion of powerful drugs to unintended users who may be injured by them. We will continue to work with our law enforcement partners to investigate and prosecute these cases.”

“Healthcare providers have an obligation to protect public health. Keeping accurate records and restricting access to controlled substances are key in fulfilling that responsibility,” stated DEA Special Agent in Charge Jay Fitzpatrick. “This significant civil penalty underscores DEA’s commitment in the fight against prescription drug abuse by holding companies accountable, regardless of their size.”

Assistant United States Attorney Colleen M. Kennedy prosecuted the case.